[cheers and applause] and appl [cheers and applause] d applause] she was once the world's youngest female self-made billionaire. >> do everything you can to be the best. >> elizabeth holmes, the stanford dropout, set to change health care forever with her company. >> if she had made this work, she would have been the next steve jobs. >> now she's accused of a multi-million dollar fraud. >> i think it's the most interesting fraud case i've dealt with. >> in never-before-aired testimony, people at the center of this scandal tell their story. >> did ms. holmes know that the company could not do all those tests? >> yeah, she knew. >> we hear from patients whose lives were on the line. >> the nurse called me back and said there could be a tumor growing somewhere. >> inside the epic rise and fall

of a defiant elizabeth holmes. >> first they think you're crazy, then they fight you and you change the world. the dropout will be right back. t back.

this special edition of "nightline," the dropout, continues. here now, rebecca jarvis. >> please raise your right hand.

do you swear to tell the truth, the whole truth and nothing but the truth? >> reporter: this is elizabeth holmes, once the youngest female self-made billionaire. in this never-before-aired deposition, she sits across from 12 attorneys, under investigation for an alleged, years-long fraud. >> did it concern you that a number of tests weren't working on the devices? >> reporter: now facing up to 20 years in prison, it's a stunning fall from grace from the woman who was once poised to change the world. ? th >> this is a revolutionary company. >> she would have been the next steve jobs. >> we've made it possible to eliminate the tubes and tubes of blood. >> reporter: to run tests on a single pinprick. >> did ms. holmes know that

theranos couldn't do those tests? >> yes, she knew. it's a story of greed and incredible deception. ♪ >> reporter: it all started here at stanford university, the birthplace of so many tech icons. >> in silicon valley, one of the things that people brag about is that they dropped out of college. steve jobs dropped out. mark zuckerberg dropped out. >> reporter: less thank t two ys here, elizabeth dropped out two. >> within a few classes in chemical edngineering it was no sir necessaot necessary for wha wanted to do. >> reporter: she launched her company theranos. she wanted nothing less than to be the apple of health care.

she mimicked steve jobs, from the signature black turtlenecks to recruiting his former head of software. >> this seemed like a really bright young lady who is very driven. has a really interesting idea. >> reporter: but he quickly started seeing red flags. >> she'd prick her finger, and then she'd put blood on something, she'd put it in the machine, sometimes she would say this part doesn't work anymore, which was a little bit odd, but some of that you expect from a startup that has a product that's not done. but the problem is it never got better. >> reporter: he quit after about a year, but elizabeth kept going, eventually getting an enormous loan from a software executive. >> i think it was about $20 million. >> reporter: but sonny who drove a porsche and black lamborghini wasn't just offering a lifeline but joining theranos as coo.

>> did he have any applications in the technology business? >> no. >> or in pathology? >> not to my tknowdgle and together they went after their biggest collaboration yet, with walgreens. >> they had more than 8,000 stores in the u.s. so you can imagine that the theranos blood test would have been available at almost every street corner. >> reporter: so they cut a $140 million dollar deal. she assembled an all-starboard of heavy weights. >> what propelled her to fame was the story in "fortune " magazine. >> reporter: it offers more than 200 blood tests without a syringe. but exactly how they accomplished all these amazing feats was a trade secret.

>> we saw her at least once a week either gracing the cover or going to a tech conference or going on tv. >> elizabeth holmes. >> elizabeth>>s.meha nk you for having mol he. >> i am so incredibly humbled. >> we did this. >> you founded this company 12 years ago, right? tell them how old were you. >> i was 19. >> reporter: by 2014, theranos is valued at nearly $10 billion. the founders of walmart invest $150 million. rupert murdoch $125 million. and the devos family, including betsy devos, $100 million. but for all the hype on the outside, on the inside, things weren't going as planned. employees like erica chung were dealing with a product that

still wasn't working. at what point do you start to think something isn't right here? ? >> i think the transition happened when i started processing patient samples. >> reporter: so you start out with a base test. >> it kept failing. i kept running it over and over and over. and how it was handled totally blew me away. they took out data points. >> reporter: so you're saying essentially that you were cherry picking the information. >> right. but the thing is, we were still processing patients. >> reporter: patients like sherry akert. >> this is the walgreens where i had the infamous blood draw. >> reporter: as a breast cancer survivor, sherry needed to get tested regularly. but thing took a terrifying turn when she got her results. >> i saw that thees troe dial

amount was over 300. i called my oncologist' office and the nurse said that is not good. there could be a tumor growing somewhere. i will never forget that day. >> reporter: the doctor told sherry to go in for more tests but this time recommended a newspaper-theranos lab. >> it was about a week later i got the call from my doctor, and he said congratulations, your estrogen is basically nonexistent. >> reporter: the theranos test had been off by hundreds of points. >> no one frompoloze. no one. not okay. >> reporter: so many inside the walls of theranos say they were too scared to speak up. but there was one unlikely whistle blower willing to take the risk. a research engineer. and the grandson of george

schultz, a board member at theranos. >> you also said ms. holmes was manipulative. what do you mean by that? >> she was really good at telling you what you need to hear to keep you going. she definitely did that with my grandfather. she would feed him things that were completely factually not true. >> people can come in and do full-service laboratory testing with a stick from a finger, as opposed to having the tubes and tubes taken fromour can you rec factually not true things that ms. holmes told you? >> the big ones are being able to run hundreds of blood tests from a single drop of blood. my grandfather would go get a theranos test done, and he would have a needle in his arm, you know, well, i thought this was a single drop of blood, and there would be some excuse about why they needed to take a venus draw for him, but foreeveryone el ev

it's a finger prick. they weren't even running the test on the devices. while i was working there, we only ran seven tests on the theranos devices. most of the tests were being run on third-party machines. >> did ms. holmes know at the time that theranos couldn't do all those tests? >> she, yeah, she knew. >> reporter: of the few tests they were running on theranos devices, tyler says the results were often not accurate. >> at thend ethf o everyone was concerned i wouwer giving patients the right resulting. >> reporter: he approached her later that evening. >> she writes, tyler, these are very serious allegations you are making and she's going to havnee

byline. >> reporter: but rather than an e-mail, he received this from sonny. had anyone elsead w me would ha them accountable in the strongest way. you are mr. schultz' grandson. the only e-mail i want to see on this topic going forward from you is an apology. instead, tyler gave his two weeks' notice. he went to meet with his grandfather at his home later that day. >> tyler tried to make him realize that this was a fraud, and his grandfather had sided with elizabeth holmes and didn't believe him. >> he said they're trying to convince me that you're stupid, but they can't do that. they can, however, convince me that you're wrong. and in this case i do believe you're wrong. and my grandfather said the theranos devices were currently being used in medevac

helicopters. >> he said that. >> he said that. >> did he tell you who had told him that? >> he didn't say who had told him that, but i have a really good guess. he also said they're being used in operating rooms. i remember saying that couldn't possibly be true, because the devices were barely working within the walls of>>eporter: h progress with his grandfather, he eventually took them to an investigative reporter. the reporter authored the first of many articles that stated among other claims that the company isn't using its technology for all the tests it offers but instead was using traditional machines bought from companies like siemens to run the variety of its tests. an article appeared on "mad

money" with jim cramer. >> first they think you're crazy, then they fight you, then all of a sudden you change the world. >> reporter: elizabeth continued to deny. deny, deny. but when we come back, under the harsh glare of a different kind of spotlight she'd find it harder to avoid the mounting of evidence. and for the first time ever, you'll hear from the defense attorney for the coo of theranos. stay with us. in a study with ozempic®, a majority of adults lowered their blood sugar and reached an a1c of less than seven oh! under seven? and you may lose weight. in the same one-year study, adults lost on average up to 12 pounds. oh! up to 12 pounds? a two-year study showed that ozempic® does not increase the risk of major cardiovascular events like heart attack, stroke, or death. oh! no increased risk? ♪ oh, oh, oh, ozempic®! ♪ ozempic® should not be the first medicine for treating diabetes,

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this special edition of "nightline" continues. elizabeth holmes, once silicon

valley's fastest rising star is now under the glare of a very different spotlight. she's finally forced to answer to the securities and exchange commission as she's investigated for an alleged, elaborate years-long fraud. >> do you swear to tell the truth, the whole truth and nothing but the truth? >> i do. >> reporter: suddenly, the woman who always seemed to have all the answers. >> we are the only lab company that is actually really focussed on leading with transparency. >> reporter: now had none. >> i don't know specifically. i'm not sure. i don't know exactly. i just don't know. >> reporter: with theranos' claims now under the microscope. >> did it concern you that on theranos' devices? >> reporter: her carefully-crafted narrative began to unravel, the careful claims she peddled to board members like george schultz, the former secretary of state. >> no.

>> was a theranos device ever deployed in the battlefield? >> no. >> was it ever deployed in a medevac helicopter? >> no. >> reporter: she was challenged. >> sentence by sentence in what she told "fortune" in that star-making cover story. >> they offer 200 and are ramping up to offer more than 1,000 of those tests all without the need for a syringe, was that statement correct? >> ratedieading it now, i don'tk it is. >> reporter: there was another significant detail she had been nha t sonny ever engaged in a romantic relationship? >> yes. >> when? >> for a long period of time. >> would you say for the majority of that time, were you living with ms. holmes? >> yes. >> did you ever tell investors that you had a romantic relationship? >> no. >> personally me talking to

investors one on one telling about my relationship, no. >> it was concealed from the board, from the press. it was concealed from investors. >> reporter: you think it was intensional that they hid it. >> oh, it was absolutely intentional. >> reporter: as revelations about theranos started to unfold and her grandiose vision versus reality came clear. >> now to the stunning fall -- >> reporter: the fcc had enough charges to bring against her. and so did the department of justice. >> elizabeth holmes and another former executive await a criminal trial. >> elizabeth holmes stepping down as the chief executive officer. >> reporter: holmes pleaded not guilty, by september 2018. the company was officially out of business. >> how big of a deal is this? >> i think it's probably the most interesting fraud case i've dealt with, bernie madoff would be second. >> reporter: and you think they're similar people.

>> i think they're very similar. smt, c poised. >> reporter: elizabeth and her counsel did not respond to our edatpeueeq r comment. but we did get this interview. if you were to give him a grade on the job he did at theranos, what would you give him? >> i would give him an a plus for dedication and effort, but obviously, when we look at this after the fact and it's been a business failure, he's sorry about that, but that's not fraud. >> reporter: it seems like a central component of your case was that theranos was on the right track and if they had enough time they would have got p it 100% right. >> i think eventually the company would have been a great success if it had been allowed to run. >> reporter: when it comes to our health, people want to know it's 100% accurate day one. they want to know that what's inside of a walgreens or at their doctors' office will actually do what it says it will

do. >> you know, rebecca, that's true, but the unfortunate thing day.carehere's mistakes made there's no perfect answer. >> reporter: a lot of people will say fake it till you make it. >> fake it till you make it doesn't work in health care, because you're talking about people's health. >> so many people wind up in jail for such little things. this is not a little thing. and it's also, not only did they fool the investors, they fooled the media. they fooled patients. they fooled doctors. >> reporter: but as elizabeth herself once declared at a forbes conference, she is not a woman who will go down without a fight. >> when you have that passion, you will get back up when you get knocked down, and you will get knocked down over and over and ever and over again and you win by getting back up. and i would start this company over 10,000

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